State and Local Household Tax Burdens: DC’s are the Lowest in the Metro Area

In hypothetical comparisons, tax burdens on the District’s families are lower than those in surrounding jurisdictions in the Greater Washington Metropolitan Area. This is according to a recent study we released, Tax Rates and Tax Burdens 2014: Washington Metropolitan Area, that compares tax burdens across four main taxes: income, property, sales, and auto.  In this study, we take a dual-income family with one child and calculate the taxes it would have to pay across the metro area. We compare each family’s DC tax burden with the tax burden it would face in the surrounding jurisdictions, including Montgomery and Prince George’s Counties in Maryland, and Arlington County, Alexandria, Fairfax County, Fairfax City, and Falls Church, in Virginia. We repeat this calculation at five different annual income levels: $25,000, $50,000, $75,000, $100,000, and $150,000.

Click on the graphic below to interact with the map and filter by tax type and income level.

2014 Metro Map SnapShot

These hypothetical comparisons show that DC’s combined tax burden ranks lowest at each income level. For the family earning $25,000/year, DC’s combined burden for all four taxes was $3,288, or 13.2 percent of income, while the combined DC tax burden was $12,747 for the family earning $150,000/year, representing 8.5 percent of its income. The regional average combined tax burden is 15.1 percent for the lowest income family, and 9.6 percent for the highest.

Assessing how the other areas rank depends on the specific income level. At the lowest income level of $25,000/year, the Virginia jurisdictions levy the highest combined tax burdens, with Alexandria, VA, ranking first overall, and levying a tax burden of $4,130, or 16.5 percent of the family’s income. At the highest income level, Falls Church, Virginia, levies the highest overall tax burden, at $15,625 or 10.4 percent of income. (See the bar charts at the end of this post to view the composition of each jurisdiction’s combined tax burden by tax type and income level.)

Income Tax

The District’s income tax burden is lower than the metropolitan average at all levels except at the $100,000 and $150,000 income levels. DC’s income tax burden was a negative $732 for the family earning $25,000, meaning that the family would receive a refund through the Earned Income Tax Credit. The family in Montgomery and Prince George’s Counties at this income level would receive a slightly smaller refund, and the family in any of the Virginia locations would owe $0 in income tax payments.

At each of the other income levels, the income tax burdens in the District fall in the between the Virginia and Maryland jurisdictions. The income tax burdens in Virginia are the lowest, and the income tax burdens in the two Maryland Counties are the highest because they each levy an additional county-level income tax of 3.2 percent.

Metro Area Income Tax Burdens, in $, All Income Levels

MetroIncomeTaxBurdens
Source: ORA Analysis. DistrictMeasured.com

Property Tax

Real property tax burdens for District of Columbia residents fall below the area-wide averages at all income levels, except at the $25,000 income level. We assume that the family at this income level rents an apartment, and that the property tax portion of rent comprises about 20 percent of rental payments.

The data we use for calculating property tax burdens, both median rents data from the US Department of Housing and Urban Development, as well as median home value and median income data from the US Census, are aggregated at the level of the Metropolitan Statistical Area (MSA). Since all of the metro area jurisdictions are in the same MSA, the house values used for calculating the property tax burdens are the same across the region. This means that the calculated property tax burden for renters is the same for each jurisdiction, while the property tax burdens for the other four income levels reflect the differences in real property tax rates and property tax relief provisions in each locale, and not the housing sub-markets in each area.

In 2014, the median income of mortgage-holders in the Washington, DC, MSA was $122,129 and the median house value was $389,700. Using a multiplier based on these values, we calculated a scaled house value for each income level in our study.

See the graphic below for the property tax burdens, by income level. As the chart illustrates, the property tax burdens rise linearly with income (with the built-in assumption that house values also rise with income), for the families assumed to own their homes (those with incomes above $50,000/year). There is an exception for the family earning $50,000 in Montgomery County, MD, because it is eligible for a supplemental homeowners credit for lower income homeowners.

Metro Area Property Tax Burdens, in $, All Income Levels

MetroPropertyTaxBurdens
Source: ORA Analysis. DistrictMeasured.com. Note: calculation for family earning $25,000 (assumed to be renters) is different than the calculation for the other four income levels (assumed to be homeowners).

Sales Tax

The District levies a general 5.75 percent sales tax, the lowest of the jurisdictions in the study, but has a higher calculated sales tax burden than the metropolitan area average at all income levels. This is due to higher sales tax rates on consumption goods such as restaurant meals, parking, hotels, and rental cars. These are items that are more likely to be purchased by tourists, or non-resident commuters, but the higher rates apply to District residents, as well. We are not able to separate the consumer spending of tourists and commuters from the expenditures made by a jurisdiction’s residents.

Virginia has a 5 percent general sales tax and each of the jurisdictions in the study levy an additional one percent local sales tax, for a total 6 percent rate. Sales tax burdens at each income level are the same in Alexandria, Arlington, Fairfax City, and Falls Church, and represent the second highest burdens behind the District, partly due to higher levies on hotels and restaurant meals. Maryland has a 6 percent general sales tax, which applies in Montgomery and Prince George’s Counties. Both Maryland counties have the same sales tax burdens at each income level and are the lowest in this study. The Maryland jurisdictions do not have a higher restaurant meals tax, like the District and several of the Virginia jurisdictions.

Auto Tax

Virginia localities have the highest auto tax burdens at all income levels, with Alexandria’s ranking highest. At the $25,000 and $50,000 income levels, Montgomery and Prince George’s Counties in Maryland had the lowest auto tax burden, only $5.00 lower than the District. At the $75,000 income level, the District’s auto tax burden also was slightly higher than the Maryland Counties’ burden of $374. The District and Maryland jurisdictions do not levy a personal property tax on automobiles, as in the Virginia localities.

See the full report for more results and a description of the methodology.

The follow charts provide comparisons of the tax burdens from each tax, by jurisdiction, at each income level.

legend

Income = $25,000

AllBurdens25k
Source: ORA Analysis. DistrictMeasured.com

 

Income = $50,000

AllBurdens50k
Source: ORA Analysis. DistrictMeasured.com

 

Income = $75,000

AllBurdens75k
Source: ORA Analysis. DistrictMeasured.com

 

Income = $100,000

AllBurdens100k
Source: ORA Analysis. DistrictMeasured.com

 

Income = $150,000

AllBurdens150k
Source: ORA Analysis. DistrictMeasured.com

 

What exactly is this data?

Because the District levies taxes typically employed by both state and local governments, the study compares DC’s tax burdens to the combined state and local tax burdens the family would face if it lived in the neighboring jurisdictions. This is the same methodology used in our annual Tax Rates and Tax Burdens 2014: A Nationwide Comparison, which compares DC tax burdens for a hypothetical family to those that would apply if the family lived in the largest city in each state in the US. [See our recent post highlighting those results here.]

We calculated the tax burdens using housing value and median income data from the US Census Bureau’s American Community Survey; median rent data from the US Department of Housing and Urban Development; income profile data from the Internal Revenue Service’s DC Statistics of Income; consumption information from the Bureau of Labor Statistics’ Consumer Expenditure Survey, and auto data from the National Automobile Dealers Association Used Car Guide, the Environmental Protection Agency, and the Department of Energy. Tax rate data were obtained from state and local tax officials, state and local government web sites, and third party sources such as the Federation of Tax Administrators and CCH/Wolters Kluwer.

How Do DC Tax Burdens Compare to Those in the Largest City in Each State?

The Office of Revenue Analysis annually compares DC’s tax burdens to those of the largest city in each state. The recently released Tax Rates and Tax Burdens 2014: A Nationwide Comparison calculates income, property, sales, and auto tax burdens for a hypothetical family of three at five different income levels across these 51 jurisdictions.

Because the District levies taxes typically employed by both state and local governments, the study compares the DC’s tax burdens to the combined state and local tax burdens the family would face if it lived in the largest city in each state.

Main Findings:

Looking at the combined burden of all four taxes by income level, DC tax burdens were lower than the average of the other 51 jurisdictions for families earning $50,000, $75,000, $100,000 or $150,000 a year. For the lowest income family earning $25,000, the District’s overall burden was higher than the average across the 51 cities.  At the lowest income level, DC’s lower than average income tax burden (with the family receiving an Earned Income Tax Credit refund) is offset by the high cost of rent, and the resulting high burden of the property tax implicitly included in rental prices.

The map below presents the combined tax burdens (as a % of income) of all four tax types added together for a family earning $25,000 a year.

2014 Tax Burdens, by Tax Type and Income Level

(Click to interact with the map and filter by tax type and income level.)

2014 Tax Burdens Map

 

Income tax:

Forty three states levy an income tax, and 10 of the cities surveyed in this study have an additional local income tax. The District’s 2014 income tax structure included four rates, with the highest rate of 8.95 percent applying to income over $350,000. DC’s income tax burden was a negative $732 for a family earning $25,000, meaning that the family would receive a refund through the Earned Income Tax Credit; this was below the average for the cities and states that had an income tax. The District’s income tax burden was slightly higher than the average for families at the other four income levels, resulting from its progressive structure.

2014 Income Tax Burdens for All Income Levels, $

 (Click to interact with the chart)
2014 Income Tax Burdens
Note: Negative bars (which can’t be seen in this snapshot) represent tax refunds due to state Earned Income Tax Credits. Burlington, VT’s negative burden also includes a renter’s rebate through the income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have an income tax. Tennessee and New Hampshire tax interest and dividend income but the exemptions are high enough to eliminate individual income taxes at all income levels used in the study.

Property tax:

All 51 cities in this study levy a tax on real property located within the city, with effective tax rates ranging from a high of $3.44 per $100 of assessed value in Detroit, Michigan, to $0.02 per $100 of assessed value in Jackson, Mississippi.

In 2014, the District taxed residential property at a rate of $0.85 per $100 of assessed value; and offered a $70,200 homestead deduction for owner-occupied residences. DC’s property tax burdens were below the 51-city average for the top four income levels (all of those assumed to own homes). However, for the family earning $25,000 a year and assumed to be renting, the District’s property tax burden was the second highest of all the cities. The high property tax burden for a renter in DC is due to the assumed property tax implicitly included in rental prices.

2014 Property Tax Burdens for All Income Levels

(Click to interact with the chart)

2014 Property Tax Burdens
Note: the methodology for calculating burdens for the $25,000/year income earning family differs from the calculations for the other four income groups.

Sales tax:

Forty six of the 51 cities studied are subject to some form of sales and use tax. The highest combined (state + local) sales tax rates are found in Los Angeles, California, and Columbia, South Carolina, both at 10 percent total. The District’s general sales tax of 5.75 percent is the fourth lowest of all 51 cities, when looking at total state and local sales tax rates combined. Consequently, sales tax burdens in DC were lower than the 51-city average at all five income levels.

(Click here to view all sales tax rates used in this study.)

Auto tax:

Residents in all 51 cities studied pay some type of automobile registration fee or tax–usually either a flat rate per vehicle or by weight of vehicle. In addition, personal property taxes on automobiles are levied in 13 of the cities.

The District’s annual auto registration fees range from $72 to $155, depending on vehicle weight, and are among the highest in the study; however, DC does not charge an annual excise tax or personal property tax on automobiles. District gas tax rates were 23.5 cents per gallon–also the median for all 51 cities–and DC auto tax burdens were below the 51-city average for all five income levels.

See the full report for more results and a description of the methodology.

What exactly is this data? We calculated the tax burdens using housing value data from the U.S. Census Bureau’s American Community Survey; income profile data from the Internal Revenue Service’s DC Statistics of Income; consumption information from the Bureau of Labor Statistics’ Consumer Expenditure Survey, and auto data from the National Automobile Dealers Association Used Car Guide, the Environmental Protection Agency,  and the Department of Energy. Tax rate data were obtained from state and local tax officials, state and local government web sites, and third party sources such as the Federation of Tax Administrators and CCH/Wolters Kluwer.